Intellectual Property Update 2011: Protecting Business Assets

Technology and the internet put ideas and trade secrets at risk

By Brianna Bodine

Most businesses have property insurance, maybe even
fire and flood insurance, but those protections only cover about 20
percent of a company's net worth and assets, according to Steve Gillen,
partner at Wood, Herron & Evans, a Cincinnati-based law firm
specializing in intellectual property law.

"Our economy has moved from a commodity- and
goods-based economy, to an economy that's based more on technology and
services, so more and more of the value of a business is in the
intellectual property associated with that business and less in the hard
assets," says Gillen. "And 80 or 90 percent of the (company) market
value is going to be tied up in the intellectual property: the
copyrights, the patent rights, the trade secret rights."

The fast pace of technology, digitization, and
increasingly open access to online information have changed the
landscape of intellectual property law and litigation. Businesses need
to be proactive in protecting their trademarks, trade secrets,
copyrights and patents, while simultaneously ensuring they avoid
infringing on other people's intellectual property.

PROTECT IT

"Protect your intellectual property," says Patricia
B. Hogan, who specializes in trademarks litigation as a partner with
the law firm Keating Muething & Klekamp. "If you've put time and
money into developing a good name or a good product, something that
people value, that's a huge asset."

But managing intellectual property and protecting
against infringement is only one side of the coin. Though the Midwest
has long been a hub for the manufacturing industry, the traditional
bricks and mortar storefront is being replaced by the digital
storefront. Consumers can shop and purchase products or services online,
without ever visiting a physical location.

"Everybody has access to everything," says Kate Smith, also a partner with Wood, Herron & Evans.

TRADEMARK POLICE

This means that even small, local businesses have to
think globally about the information they share online, and how that
information might make them vulnerable to lawsuits. The spread of the
Internet and digitization opens the door for trademark theft from every
corner of the world.

"Technology is really making the world a smaller
place, actually," says Louis Ebling, a partner with Thompson Hine who
specializes in international trademark portfolio management. A trademark
portfolio includes a collection of trademark registrations and
applications for a particular product, and is a tool to conduct global
trademark acquisition, maintenance and enforcement.

"The trademark owner is obligated to police the
misuse of the trademark," Ebling says. "We have to proactively police
the marketplace."

If companies fail to enforce potential trademark
infringements, the trademark is considered abandoned for legal purposes.
Businesses owners need to maintain control over company trademarks and
brands.

The Internet complicates matters because it is
extremely easy to adopt and use a trademark or to discover other
companies' usage of trademarks. "Clients really want to be proactive in
terms of identifying third-party marks that might infringe on theirs and
take steps quickly to address those issues, and they might want to do
it themselves," Smith says.

Business owners who email perceived infringers might
get a nasty surprise: They could be the ones stealing the trademark. A
business that uses a trademark first is often entitled to the trademark
for their geographic area, based on U.S. common law, while a
first-to-register system is the standard outside the country.

While being proactive about policing a trademark is
necessary, businesses should still consult with a legal adviser to fully
understand the facts prior to taking action, Smith says.

TROLLING FOR PROFIT

Patent trolls don't live under bridges, but business owners should still be wary of crossing their paths.

"The amount of information that's out there about
businesses is helpful to the business, but it can also be a liability
from a business standpoint," says Thomas F. Hankinson, an associate with
Keating Muething & Klekamp.

While businesses must be technologically savvy and
maintain an online presence, the increased access to online information
opens the doors to intellectual property lawsuits from patent trolls,
according to Hankinson.

Patent trolls are companies or individuals who buy
up intellectual property such as patents with no intention to ever
produce or manufacture the product. They comb the Internet, looking for
companies that might be using all or part of their patent, and then sue
for patent infringement.

The minimum cost of most patent litigation is
typically around $1 million, and costs can easily climb to more than $3
million, according to Steven Benintendi, a partner at Wood, Herron &
Evans who specializes in patents. "Point is, patent litigation is
expensive, and you have to really be committed to carry out a patent
litigation," he asserts.

Because patent litigation is risky and "ungodly
expensive," Hogan says, most companies might pay off the patent troll to
avoid going to court.

"Now, patent trolls are not only performing
stick-ups of legitimate businesses that are trying to put out a product,
but they're also smearing the reputation of legitimate non-practicing
entities, who are driving innovation and are helpful," Hankinson says.

Non-practicing entities (NPEs) are individuals or
companies who hold patents without manufacturing them as well, but might
license the patents out to others. This includes private inventors who
might not have the means to manufacture an invention on a large scale.

Though patent trolls are technically considered
NPEs, they profit from litigation using an opportunistic and
antagonistic approach. "The terms are sometimes a matter of
perspective," Hankinson says.

Regardless, "trolling" has become a "real industry,"
according to Ebling. More recently, copyright trolls have appeared on
the scene, purchasing rights to written works, music and photos in order
to sue website owners who reproduce or share these materials online.

"Everything you do is now public," Ebling says.
"Online you feel like you're anonymous, but you're not, and you're
becoming less anonymous all the time."

Businesses must be wary of information they share
online, especially in company blogs, where copying portions of news
stories or photos could be a potential litigation matter.

"There is an abundance of digital property that is
easily accessible. It's easy to go out and find it, get it, have a copy
and adapt it," Gillen says. "It's just as easy for you to get caught."

Also, businesses with websites that allow
third-party posting can be vulnerable if someone else posts copyrighted
material to their website, such as in a comments section. Before this
type of infringement occurs, businesses should seek safe harbor
protection though Section 512 of the Digital Millennium Copyright Act
(DMCA).

Safe harbor offers protection for website owners or
service providers when a third party posts copyrighted material to its
website, as long as the provider does not profit from or know about the
infringement, provides a copyright policy to third-party users, and
employs an agent to deal with copyright complaints. This type of
safeguard can protect a business from frivolous copyright litigation.

Fighting Back

Some defendants are fighting back against copyright
trolls, citing fair use or implied license of copyrighted materials such
as in the case of Righthaven v. Klerks, but many cases settle before
going to court.

"I don't really like these guys (trolls), they're kind of scumbags, but what they're doing is brilliant," Ebling says.

Regardless of the legitimacy of NPEs versus trolls,
businesses should ensure they own the intellectual property to the
products they produce, the services they provide, and the information
they share.

The bottom line: Don't use something if you don't
own it. Patent trolls are not going to fall for, "The next billy goat is
bigger, I swear."

THE LAST FIRST-TO-INVENT

Patent reform has resurfaced this year with the
introduction of the America Invents Act, the newest link in a long chain
of failed reform efforts, dating to the Patent Reform Act of 2005.

If the bill is signed into law, the biggest change
will be the conversion from first-to-invent to first-to-file. Currently,
the U.S. is the only major global power still operating on a
first-to-invent system for awarding patents.

"First to invent is a neat system. It's nice to
award to people who are first to invent, as opposed to shifting the
award to people who are quick at doing paperwork," Hankinson says.
"There is some fear that first-to-file will favor large companies with
large resources in terms of innovations."

But with the cost of patent litigation skyrocketing,
legislators want to put a "ceiling on the damages that are at stake in a
patent litigation," Hankinson says. "Fighting about who invented
something in the abstract is very expensive: Both sides will have a
story."

Additionally, the America Invents Act looks to
simplify the patent process in a global economy, "basically trying to
harmonize our patent laws with other countries' patent laws," says
attorney David Lafkas, who specializes in trademark and patents.

For businesses and entrepreneurs, the change will
mean compressed timelines to file for a patent. "Essentially, whoever
gets to the patent office first wins," Lafkas says.

Reform will need to address the excessively slow
registration process at the U.S. Patent and Trademark Office (USPTO),
which is buried under a mountain of more than 700,000 backlogged
patents.

"If it takes you four years to get a patent, and
technology is turning over ever four or five years, that's no good,"
Benintendi says.

While patent reform has yet to become a reality,
businesses should be aware of the changes that might result if the bill
becomes law. Rapid filing, or using a provisional application to obtain
an early filing date, will be a viable course of action.

Though filing quickly will put a "stake in the
ground," legal counsel should still be sought prior to production and
commercialization of an invention to ensure no one else's patent rights
are being infringed, Benintendi says.

DUE DILIGENCE

Protecting intellectual property and avoiding
expensive litigation will increasingly dominate the business terrain of
the coming decade.

Benintendi recommends "due diligence" for businesses
trying to manage and protect their intellectual currency in the
marketplace. Businesses should be proactive and seek counsel, preferably
before their work gets stolen or they receive a phone call from someone
accusing them of infringement.

"Typically, there are multiple layers of protection,
including copyright, trademark or trade secret, or some other
combination," Gillen says. "The best practice is to employ a blend of
approaches to protect the property rather than focusing on one."